What Does a Profit & Loss (P&L) Statement Look Like?

A Profit & Loss (P&L) statement, also known as an Income Statement, provides a summary of a company’s financial performance over a specified period. This financial report details the revenues earned and expenses incurred, revealing whether a business generated a profit or a loss. It is a tool for understanding the operational health and financial viability of a company, offering insights into its ability to generate sales and manage costs. The P&L statement is typically prepared for periods such as a quarter or a fiscal year, alongside other financial documents like the balance sheet and cash flow statement.

Key Sections of a P&L

The P&L statement presents a company’s financial results through key components. Revenue, often appearing at the top, represents the total money earned from the sale of goods or services before any costs are subtracted. Directly below revenue is the Cost of Goods Sold (COGS), which includes the direct expenses tied to producing the goods or services sold.

Subtracting COGS from revenue yields Gross Profit, an indicator of a company’s efficiency in managing its production costs. Following gross profit are Operating Expenses, which encompass costs incurred from normal business operations not directly related to production, such as administrative and selling costs.

When operating expenses are deducted from gross profit, the result is Operating Income, also referred to as Earnings Before Interest and Taxes (EBIT). This figure shows the profitability of a company’s core operations. Further down the statement, Other Income and Expenses capture revenues and costs that are not part of the primary business activities, such as interest earned on investments or interest paid on loans. After accounting for all expenses, including income taxes, the statement arrives at Net Income, the ultimate profit or loss for the period.

Detailed Line Items and Their Placement

The major sections of a P&L statement contain specific line items that provide granular detail. Under the Revenue section, a business might report distinct categories such as product sales, service revenue, or recurring subscription revenue, reflecting diverse income streams.

Within Cost of Goods Sold (COGS), specific direct costs are listed, which can include the cost of raw materials used in production, wages for direct labor involved in manufacturing, and manufacturing overhead expenses. These items are directly tied to the creation of the goods or services that generate revenue.

Operating Expenses typically feature sub-categories like Selling, General, & Administrative (SG&A) expenses, which group together various indirect costs. Examples include salaries for administrative staff, office rent, utility bills, office supplies, marketing and advertising expenditures, and legal or accounting fees. Non-cash expenses like Depreciation and Amortization are also listed, representing the systematic allocation of tangible and intangible asset costs over their useful lives.

Other Income and Expenses include items that are outside a company’s primary operations. This might involve interest income received from investments, interest expense paid on outstanding debt, or gains or losses from the sale of assets such that are not part of the company’s regular inventory. Before reaching the final net income figure, the Income Tax Expense is typically presented, reflecting the amount owed to tax authorities based on the company’s taxable income. These items flow from top-line revenue down to net income.

Calculating Profitability

The P&L statement follows a sequential calculation to transform revenue into net income. The process begins by taking the total Revenue and subtracting the Cost of Goods Sold (COGS), resulting in the Gross Profit. This step reveals the profitability of a company’s core production or service delivery before considering broader operational costs.

From the Gross Profit, Operating Expenses are then deducted to arrive at the Operating Income. This figure highlights the profitability generated from a business’s primary activities, excluding non-operating items and taxes. The calculation then progresses by adjusting Operating Income for Other Income and Expenses, leading to the Pre-Tax Income.

Finally, the Income Tax Expense is subtracted from the Pre-Tax Income to determine the Net Income, which is often referred to as the “bottom line.” This figure represents the company’s profit or loss after all revenues and expenses have been accounted for. The P&L statement reflects financial performance over a defined period, such as a fiscal quarter or year.